INSURTECH

Last Updated 11/20/18

Issue: The very nature of the business of insurance is transforming, driven by technological advancements and socio-economic trends. Emerging technologies—like big data, the Internet of Things (IoT), mobile technology, artificial intelligence (AI), wearable devices and blockchain—are revolutionizing the insurance industry and changing consumer expectations and preferences. Consumer habits are also evolving rapidly. According to the U.S. Census Bureau, millennials (ages 18-34) now outnumber baby boomers (ages 51-69) as the largest living generation. The millennials are well versed in new technologies and looking to take a more hands-on approach when it comes to managing their finances and purchasing insurance products.

Consequently, technology-enabled innovations in the insurance industry, or "InsurTechs," have emerged to offer simpler products and streamlined customer experience, catering to a growing generational shift toward millennials. While the InsurTech industry is still in its infancy, the sector is gaining momentum and garnering increased attention from venture capitalists (VC's), as well as established insurers. State insurance regulators have also taken numerous steps recently to increase engagement in new and innovative technologies.

BackgroundThe term “InsurTech” can be described as the innovative use of technology in insurance. InsurTech is a subset of “FinTech,” or financial technology. FinTech has transformed the banking world (e.g., Square, one of the most recognized FinTechs, offers mobile payments with innovative smartphone card swiper technology) and now InsurTech is beginning to alter the business models and competitive landscape of the insurance industry.

Changing social and technological trends have created an opportunity for tech-savvy entrepreneurs. An increasing number of InsurTechs are leveraging new technology to address existing insurance challenges and opportunities. InsurTech activity has increased significantly over the last few years and continues to attract significant attention. Oxbow Partners estimates there are currently more than 1,500 InsurTech startups.

InsurTech innovation is occurring across the entire insurance value chain—from distribution and marketing, product design, underwriting, claims management and balance sheet management and across all lines of insurance—property and casualty, life and health. Distribution is the area of highest focus. InsurTechs are reaching new customers through new distribution mediums—addressing generational shifts in the way people communicate, access information and make decisions—while not disturbing traditional channels. For example, according to a Gallup poll, millennials are more than likely to purchase policies online instead of through an agent.

InsurTechs are catering to these preferences by providing user-friendly platforms. For example, InsurTech startup Trov allows a consumer to insure their personal belongings using an app. Coverage can be swiped “on” or “off” if a consumer wants coverage or not. Some InsurTechs combine digital ease with the human touch, often using technology such as AI, machine-learning and robotics. Other InsurTechs are using wearables and monitors to provide usage-based products integrated with customers’ lives in a way not usually associated with insurance.

Status: New innovations are emerging every day. State insurance regulators do not wish to stand in the way of these innovations. Instead, they want to work closely with innovators to make sure laws and regulations are being followed and consumers are not being harmed. The NAIC Innovation and Technology (EX) Task Force was established in March 2017 to help insurance regulators stay informed on key developments. This includes new products and services from startup companies, as well as established insurance industry players. The Task Force marks an important step in state insurance regulatory efforts to increase engagement in new and innovative technologies.

The Task Force meets regularly to learn more about innovative insurance solutions. The Task Force recently completed a survey concerning what states are doing, organizationally and operationally, in regard to innovation and technology. As part of the survey, each state was asked to identify a contact to be the point person for questions that come into the state insurance department related to innovation and technology. The Task Force recently released the list of contacts which is available on the NAIC website. In addition, state insurance regulators, through Task Force, are focused on a number of regulatory areas where innovation may be meeting obstacles such as with anti-rebating laws, the cancellation notice process and e-signatures.

Task Force members and other regulators also regularly participate in a variety of settings to further the dialogue. Most recently, this includes the 2018 NAIC Insurance Summit and InsurTech Connect conference, where NAIC members have an opportunity to interact with stakeholders in this space. Among other things, the Task Force members have participated in NAIC forums related to autonomous vehicles and with start-ups in Silicon Valley and recently participated in a cybersecurity symposium held jointly with Stanford University.